July 11, 2025
AAEI and the the trade community are monitoring a significant development from the Bureau of Industry and Security (BIS) that could profoundly impact U.S. exporters and their compliance obligations. Tim Mooney, Acting Director of Regulatory Policy at BIS, recently confirmed that BIS is drafting a “50% Rule” for the Entity List. This proposed rule signifies a fundamental shift in export control enforcement, moving towards an ownership-based approach like that employed by the Office of Foreign Assets Control (OFAC).
Currently, Entity List restrictions apply exclusively to explicitly named entities. This allows subsidiaries, joint ventures, or related entities not specifically named to engage in activities otherwise restricted for their listed parent companies. This loophole has been exploited by sanctioned entities, particularly in the technological sectors, through corporate restructuring and the formation of new subsidiaries.
The proposed “50% Rule” aims to close this loophole. Once implemented, any company that is directly or indirectly owned 50% or more by a listed entity would automatically become subject to Entity List restrictions. This rule would also apply to indirect ownership through multiple layers of holding structures, increasing the complexity of corporate compliance. This shift moves regulatory enforcement from an “action-based” assessment to an “ownership-based” assessment, significantly tightening the enforcement net and increasing transparency requirements for global corporate structures.
BIS intends to introduce this rule as an “interim final rule”. This approach would potentially bypass the typical public notice-and-comment period, signaling a high level of urgency and perceived national security significance by BIS. This expedited implementation will compress the timeframe for companies to adjust their compliance processes, re-evaluate business partnerships, and reassess risks linked to entity ownership structures.
This regulatory change stems from persistent criticism regarding vulnerabilities in current Entity List enforcement, specifically the ability of sanctioned companies to circumvent export controls through subsidiary entities or opaque ownership structures. By adopting the OFAC-style “50% Rule,” BIS aims to eliminate ambiguity around entity control, enhance enforcement consistency.
Key Compliance Implications for US Exporters
This rule represents a shift in compliance obligations for businesses. Your compliance frameworks will need to evolve from simple screening against named entities to sophisticated structural analyses of corporate ownership and control. Companies will be required to:
- Enhance internal capabilities to systematically identify ultimate beneficial owners, indirect ownership chains, and control structures.
- Systematically track, verify, and document their partners’ ownership and control structures to ensure compliance with the possible updated regulation
Export Practitioners’ Recommendations
Export practitioners strongly recommend immediate action to prepare for this impending regulatory evolution. We advise our clients to:
- Proactively Reassess Internal Compliance Frameworks: Review and update your current export compliance programs to account for ownership-based restrictions. Have a discussion with your freight forwarder to ensure that their screening framework is also enhanced to assist with your requirements
- Strengthen Ownership Tracking Systems: Implement robust systems to systematically identify and track ultimate beneficial owners and complex indirect ownership chains for all business partners.
- Enhance Escalation Procedures: review your current processes to ensure that right staff with updated information and have the ability for decision making
BIS’s introduction of the “50% Rule” marks a strategic recalibration of export control enforcement towards a structure-based system of compliance. US Companies must anticipate this regulatory shift and proactively adapt their compliance strategies. AAEI’s Export and Global Trade Compliance Committee is here to provide guidance and support as you navigate these significant changes.
